Commercial paper

After T-bills, commercial paper is the most common money market instrument. It is a very popular way of raising money for large, well-regarded companies.

Example 14.5

Commercial paper

A dealer buys $2,000,000 worth of Eurodollar commercial paper from a company requiring liquidity, with a 60-day maturity, at a discounted price of $1,994,874. For Eurodollar (and most other Eurocurrency) deals interest is calculated using an actual/360-day count convention (the same as in the US).

The discount yield (using an actual/360-day count) is:

For UK commercial paper the day count convention is actual/365 days.